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issue: November 2004 APPLIANCE Magazine

New Delhi Report
Festival Blues


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by Adite Chatterjee, New Delhi correspondent, APPLIANCE magazine

The Indian festival season has begun on both a positive and a negative note this year. First the good news: the Indian economy is on a roll.

According to data released by the Central Statistical Organization, during the first quarter of the current fiscal year 2004-2005, GDP growth has registered a 7.4-percent increase compared to 5.3 percent last year. The growth has been driven by manufacturing and services sectors, with manufacturing registering an 8-percent growth compared to 6.6 percent last year. With rising business confidence levels, consumer spending is on the rise. That should be welcome news for manufacturers of appliances.

The bad news, at least from the consumers’ point of view, is that durables are going to become more expensive this festival season, as several manufacturers have announced price hikes.

As a result, a wide range of appliances, including air-conditioners, washing machines, and color TVs, will become more expensive. Normally, consumers look forward to discounted prices during the festival season, when most Indian families acquire new appliances. What this implies is that the downward spiral of durable prices during the past few years has been halted. The big question, though, is: will it also mean a drop in sales of big-ticket appliances?

Most manufacturers are attributing the reason for higher prices to the escalation in materials costs in steel and plastics. Also, the tax component on these items is very high and has forced many manufacturers to pass on the burden to consumers.

According to a recent study by the Indian Credit Rating Association (ICRA), cost increases have resulted in declining operating profits and margins for manufacturers. Consequently, the white goods sector has been reporting negative margins since the financial year 2002.

Because of the constantly dropping prices of appliances, the price differential between appliances targeted at rural markets and those for urban markets has almost disappeared. As a result, many of the so-called rural brands are now being sold in urban markets. For instance, LG’s Sampoorna brand, which was originally intended for rural markets, has been quite successful in urban markets as well. Philips too is launching its low-priced Vardhan in urban markets. However, as the urban markets get saturated, appliance makers will have to rethink their strategies for the rural market.

 

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